Sweeping financial crimes bill to hitch a ride on defense measure

Dec 3, 2020
In The News

Broad legislation to combat the use of shell companies by criminals and foreign adversaries is nearing the finish line after more than 10 years of lobbying and negotiations. 

The landmark measure to overhaul financial crime safeguards is hitching a ride on the annual defense authorization bill, the National Defense Authorization Act (NDAA), poised for passage before the end of the year.

The legislation would require businesses to disclose their beneficial owners — whoever ultimately owns or controls the entity — at the time of formation to the Financial Crimes Enforcement Network, a division of the Treasury Department, to help prevent the use of anonymous shell companies for criminal purposes.

One lawmaker eagerly awaiting President Trump’s signature on the NDAA is Rep. Carolyn Maloney (D-N.Y.), who has been working on the financial crimes bill for more than a decade.

“Shell companies are a huge problem. It’s difficult to put precise numbers on it, because until we pass my bill into law, we don’t know who actually owns these shell companies,” Maloney told The Hill.

Maloney, who chairs the House Oversight and Reform Committee, recently secured bipartisan support for the measure from unlikely bedfellows: Treasury Secretary Steven Mnuchin, House Financial Services Committee Chairwoman Maxine Waters (D-Calif.), Sen. Mark Warner (D-Va.) and Rep. Patrick McHenry (N.C.), the top Republican on the Financial Services panel. 

Warner, who authored the Senate version of the legislation, applauded the inclusion of it in this year’s NDAA. His stand-alone bill is supported by other Democrats and GOP Sens. Tom Cotton (Ark.), Mike Rounds (S.D.), John Kennedy (La.) and Jerry Moran (Kan.). 

“It is past time to put an end to the secrecy that allows drug cartels, human traffickers, arms dealers, terrorists and kleptocrats to exploit the United States’ banking system in order to carry out anti-American activities,” Warner said in a statement.

Getting the NDAA passed and having it signed into law might be two different things, though. President Trump on Tuesday night threatened to veto the defense policy bill unless it includes a repeal of a 1996 statute that provides legal protections to internet companies and allows for content moderation.

Maloney first introduced the bill in 2009 but said she started working on the issue in 2007. 

“It took so long because it affects so many industries and involves so many stakeholders. Every stakeholder has their own priorities and their own asks, and it takes a very long time to sort through all of those issues and put the bill together in a way that satisfies everyone,” she said.

A leading voice lobbying for passage of the financial crimes bill is the Bank Policy Institute. 

“Shell companies are detrimental to small businesses because they undercut them on market prices, they can be used to ship illegal goods and can really devastate market competitiveness,” said Cara Camacho, senior vice president of government affairs for the institute. 

Maloney said the bill also addresses national security concerns, making the NDAA an appropriate vehicle for its passage.

“Terrorist organizations use anonymous shell companies to finance their operations and move their money around, so cracking down on these shell companies will cut off financial support for the terrorists who threaten our citizens and our national security,” she said. 

The ownership information in the Financial Crimes Enforcement Network would only be available to law enforcement and financial institutions.

There are some exemptions in the bill, including for companies that already disclose their ownership information elsewhere and those that have more than 20 employees and $5 billion in annual revenue.

“Those are clearly legitimate businesses, and not a shell company that is being used to launder money,” Maloney said.

The American Bankers Association, which advocates for banks like JPMorgan Chase, Wells Fargo and Bank of America, said the bill would improve the Bank Secretary Act, which requires financial institutions to assist government agencies in detecting and preventing money laundering.

“Banks have an obligation to verify their customers, and to do that can be exceedingly difficult. What would be a lot more effective at preventing the abuse of shell corporations that exist currently in our system would be to establish this requirement. It would make the system more accurate and more efficient,” Camacho said.

But the measure is not without its detractors.

The National Federation of Independent Business (NFIB) said it plans to reach out to pertinent lawmakers to voice its opposition.

“We just view a new small-business mandate buried in a defense bill during a pandemic as the wrong policy in the wrong place at the wrong time,” said Kevin Kuhlman, the NFIB’s vice president of federal government relations. 

After the initial disclosure, the bill would require companies to update their ownership information if it changes. 

“I understand there are large banks that want this done to unload a regulatory issue on them,” Kuhlman said. “I just don’t understand how the proponents are disregarding the small business concerns for the most part.” 

A coalition of more than 60 small-business organizations, including the NFIB, the American Farm Bureau Federation, the International Franchise Association and the International Council of Shopping Centers, sent a letter to the Senate Armed Services and House Armed Services committees in August opposing the legislation. 

They called the measure “non-germane” to the NDAA and argued it would burden small-business owners and “decrease privacy protections.”

Proponents counter that the bill has undergone several changes to address the concerns of small businesses.

“Reporting frequency was reduced, the period at which this takes effect was lengthened so it’s not on day one, and the penalties for failing to provide the information were changed so it’s only willful negligence that is penalized,” said Mike Lee, head of government affairs for the for Bank Policy Institute.

Maloney called it a “very modest price to pay for national security,” noting that for the United Kingdom to collect this information, it costs a small business about a $200 one-time fee.

“At the end of the day, we’re talking about submitting four pieces of information — a name, address, date of birth, and Social Security number or passport number. When you file incorporation papers to start a small business, you’re already submitting that information. It’s really not any information they don’t already share otherwise and it’s all information that could fit on a half a page of paper,” Camacho said. 

Maloney also highlighted the broad support for the bill, including from groups like the National Fraternal Order of Police and the National Association of Attorneys General. 

“We have the support of over 130 good-government NGOs, the entire law enforcement community, the banks, the credit unions, human rights groups, state secretaries of state, most of the real estate industry — and many, many more,” she said. “And now, after years of work, everyone is on board with the bill — Democrats, Republicans, and the Treasury Department.”